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POLITICO 44

The top Republican on the Senate Banking Committee said that Treasury Secretary Tim Geithner mischaracterized his position in a speech praising the Senate Democratic financial reform bill.

In a speech at the American Enterprise Institute Monday, Geithner quoted several excerpts from Sen. Richard Shelby’s (R-Ala.) remarks to the Oxford Union last fall in discussing how the Senate bill would end the existence of too-big-to-fail financial firms.

Specifically, Shelby objected to Geithner’s conclusion that the Senate bill, written by Banking Committee Chairman Chris Dodd, meets the objectives he set out in the quoted speech.

While Dodd’s “most recent financial reform bill represents an improvement over the bill you sent to Congress last year, it does not end the problem of ‘too big to fail’ and will not end the associated moral hazard. Also, it does not ensure that taxpayers are protected from the costs of bailing out failing financial reform,” Shelby said in a letter to Geithner Thursday.

Shelby laid out several specific problems he has with the government mechanism constructed by Dodd’s bill to wind down failing financial firms without needing taxpayer-funded bailouts. The list of specific objections provide a road map of changes Republicans would like to make to Dodd’s bill. Led by Shelby, GOP senators on the banking committee are still negotiating with Dodd in hopes of crafting a compromise they could support before the bill comes up for a vote on the Senate floor.

“Sen. Shelby clearly takes exception with Secretary Geithner’s characterization of his position. He believes, however, that the differences he listed in the letter are ones that can be bridged with Chairman Dodd,” said Shelby spokesman Jonathan Graffeo.

Shelby said Dodd’s bill leaves the Federal Reserve with emergency lending powers that are far too broad and “far too open to abuse.” The Fed would be able to decide itself what appropriate collateral is for an emergency loan, and Shelby believes that would enable the central bank to “provide widespread bailouts by making emergency loans against bad collateral. Continuing to allow the Fed to have the authority to prop up failing institutions is unacceptable to me,” Shelby wrote.

Shelby said he disagrees with the provision empowering the Federal Deposit Insurance Corporation and Treasury to provide firms with debt guarantees in times of “economic distress,” which he characterized as “a backdoor way to prop up failing institutions.”

He called the $50 billion upfront fund Dodd’s bill would create to pay for the wind down of any firm by the government a “slush fund,” arguing that Treasury could use the money for any purpose at all – not just to foot the bill of taking down future AIGs. Shelby also argued that the mere existence of a pot of money would influence officials to choose “bailout over bankruptcy.”

Finally, Shelby objected to language that would give the Fed oversight over bank holding companies with assets of more than $50 billion as well as other big nonbank firms that are judged to pose a risk to the financial system. Such a structure, Shelby said, would signal to the market that the government in fact sees these firms as “too big to fail” and thus having an implicit government guarantee against failure – perpetuating the problem the legislation seeks to end.

Just WHY are the Fools On The Hill going to give MORE power to Goldman Sachs (aka Federal Reserve)? Haven't they stolen enough of our labors? They sold our gold and silver and gave us fiat paper that isn't even soft enough to use as toilet paper. Sorry people, but the Ft Knox vaults have NO GOLD.

Ignore the comments fromthe pig brained concerning Geithner. Reasonable people know they owe the recovering economy to his vision and guidance. There has not been a voice in the comical Tea Bag crowd who could have saved the the folked up mess left by Shrub and his gang.

Now we have the irony of Shelby tryng to get on the board the train he tried to derail before it leaves the station. the smart guys are going to fix the problems he caused and he wants to be part of solution.

Deets the Lab: Your ignorance knows no bounds, pig brain. Perhaps if Geithner had spent less time looking for ways to cheat on his tax returns, he could have exercised some oversight over Citibank as Chairman of the NY Federal Reserve.

Geithner's vision and guidance? Isn't Obambi about to announce his fourth loan foreclosure program, because the last three have been disasters?

Besides Shelby's attempts to reform Fannie Mae were filibustered by Schumer and Countrywide Dodd. And currently it sounds like Geithner's bank reform is Fannie Mae redux with the Fed guarantying bank losses all over again.

Just wait til the Fed has to shut off the money spigot. The democrats are toast!

The problem with your comments Deets, is there is no substance only personal attacks. A reasonable person would not automatically dismissed the ideas of another just because they are on the other side of the political aisle. The last paragraph of the article

"Such a structure, Shelby said, would signal to the market that the government in fact sees these firms as “too big to fail” and thus having an implicit government guarantee against failure – perpetuating the problem the legislation seeks to end."

appears to be a very legitimate concern that most people would agree with.

I really think Shelby is a smart guy but this objecting for this and that is getting so old. Geithner is a finance guy. Shelby is a politician. Neither really understands the job of the other.

I would really like to see the GOP stop with the name calling, stalling, saying no, objecting and offer concrete solutions. To object does nothing. Either offer an alternative and solution right away or just go away.

My taxpayer dollars go to both of these guys and I'm pretty angry nothing is getting done. I give the edge to the Dems on this because the GOP is just arguing and blustering and not doing anything. Either legislate or leave.

Shelby rightly claims no business should be too big to fail, but his example of surviving Lehman's failure simply ignores the unacceptable measures that had to be taken to bolster the interconnected surviving dependents. Neither party has the stomach to break up the "too bigs", but he won't stand for an independent agency regulating usury. Shelby's idea to put consumer protection at FDIC beats keeping it at the Fed, where they've had that athority since 1994, but in simply reathorizing responsibility, banning bailouts and protecting consumers, they don't change banking forms or functions that caused collapse, and necessitated rescue.